Looking for a Bitcoin Halving Payday? Tamp Expectations

Osho Jha is an investor, data scientist and tech company executive who enjoys finding and analyzing unique data sets for investing in both public and private markets. 

Many bullish investment theses for bitcoin are grounded in expectations that the upcoming halving of block rewards will cause the bitcoin (BTC) price to increase. Previous supply constrictions,  from 50 BTC to 25 BTC and 25 BTC to, where we currently stand, at 12.5 BTC, have had that effect. Still, given the rare nature of these events, our data points are limited and increase the anticipation and speculation around upcoming halving some time in May 2020.

There are many great pieces on the mechanics of a BTC halving and how they were described in the original white paper and subsequently coded into the structure of bitcoin. So I will assume familiarity with these concepts going forward as we try to understand the supply constriction narrative of the halving thesis.

See also: Bitcoin Halving, Explained

Unfortunately, many investors are pointing to the halving as a catalyst for a price increase in the face of a difficult bitcoin market, which has had three straight quarters of negative returns, and have set sky high expectations for what sort of price action we may see after. I certainly believe that the halving will have a positive impact on price, but I am concerned by investors expecting parabolic gains in the fashion of 2017.

Bitcoin during previous halvings. Source: Coin Metrics

As it currently stands, the bullish thesis around the halving is that as block rewards get cut in half, the number of miners able to sustain their operations will decline. Since fewer BTC are being brought into circulation, there should also be some reduced sell pressure as miners often sell BTC to fund operations in their local currency. One could then conclude that the supply constriction will allow the price to appreciate.

While I generally believe this thesis to be sound, I think it hinges on the assumption that a…

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